With a little over 3 months left in 2016, a Pinnacle report shows that people can expect more of the same in terms of the economy despite a change in government leadership in the 2nd quarter of the year.
According to the report, the current administration so far is continuing and refining the macroeconomic policies of the previous such as infrastructure spending through private-public partnerships (PPP), improving the conditional cash transfer (CCT) program. As part of President Duterte’s 8-point economic plan, the government is set to spend 5% of gross domestic product on infrastructure spending.
On the real estate side, the government addressing bottlenecks land administration and management system.
The Pinnacle report covered 5 markets: office, residential, retail, hotel and gaming, and industrial.
Office Market
Business process outsourcing (BPO) industry experts are confident to reach the target of 1.3 million employees and annual revenue generation of US$ 25 billion in the next couple of years. The new IT-BPM Roadmap 2017 to 2022 is scheduled to be made public by October of this year. While the growth of the industry in the past decade has been phenomenal, industry experts are saying that the growth in the next five years would range between 12% to 18%, or two to three times the world's average of 6% annual growth. Buoyed by this continuous growth, real estate developers are relentless in building and delivering office spaces. Over one million square meters of office are projected to open in the next two years in major business districts in Metro Manila, breaching the seven million square meter-mark. While the planned office stock of Grade A and Prime Grade A office stock seems high, it is important to note that overall vacancy across these business districts is now below 4%. It is also important to note also that office building developers are now experiencing some delay in delivery due to tight skilled labor market.
The office market is still a landlord's market, and given the low vacancy, rents have been increasing and albeit plateauing in recent months. The initial fear of softening rents may still be averted due to brisk demand for office space. Rents in Makati Central Business District (CBD) generally held up, where Premium Grade A buildings have a weighted average of Php 1,300 per sqm per month, Grade A buildings have a weighted average is Php 905 per sqm per month, and for Grade B&C Buildings, the weighted average is Php 695 per sqm per month.
Since developers are trying to serve the pent up demand with new stock, overall rents are generally unchanged in the last quarter. The weighted average rent in BGC is Php 895 per sqm per month. The average rent of Grade A office buildings in Ortigas is still at Php 650 per sqm per month since older buildings are weighing down the rents of newer stock. Alabang and Bay Area business districts have a slightly higher weighted average rent of Php 660 per sqm per month, pulled up by newer stock. Quezon City office rents have higher weighted average of Php 680 per sqm per month, also due to newer buildings.
Selling of office spaces is now a growing trend. The floor area for sale accounts for less than 10% of the total stock of approximately seven million square meters. This is seen to steadily grow in the coming quarters. Selling prices in Makati and BCG business districts are north of Php 200,000 per square meter.
Residential Market
The affordable and socialized housing segments are still underserved. The projected housing backlog will be more than 5.5 million by end of 2016, according to the National Economic and Development Authority (NEDA)-attached agency Statistical Research and Training Center (SRTC), now Philippine Statistical Research and Training Institute (PSRTI). The projections were originally based from the 2010 Census of Population and Housing. Since there was a new census in 2015, and the results are steadily released in more details, NEDA would probably update its projections of housing needs. It is worth noting that Philippine population as of August 1, 2015 is pegged at 100,981,437, based on the 2015 Census of Population as published by PSA.
Likewise, there is still a sustained demand for luxury high-end condominium units mainly coming from local executives and expats. While there were delays in turning over of new residential condominium projects due to lack of skilled laborers, the Alphaland Makati Tower completed its 480 units. As reported earlier, The Residences at Alphaland Makati Place has raised the bar of amenities and services by incorporating The City Club in this high-end development. It is not only offering quality amenities and services, but the full complement of clubbing is available.
Makati and BGC business districts dominate the high-end residential products due to the concentration of expatriates and local executives. Nowadays, even San Juan City which is one of the most sparsely populated in Metro Manila that used to shun vertical developments, is now seeing high-end condominium products. An excellent example is One86 at Wilson which is a 32-unit, 10-storey residential project along Wilson St. Keeping the ambiance of low density, it is bragging to be an extension of Greenhills. It is offering only four units per floor, elaborate security features, and will provide services like valet and concierge to assist owners and tenants alike.
There is a perceived oversupply of mid-market residential condominium buildings in Metro Manila. While top players like Ayala, DMCI, Filinvest, Lopez/Rockwell, Megaworld, Federal Land, Robinsons, SM, and Vista Land Groups will continue to build due to their vast distribution channels, competing against these players for the same market segment is not advisable. It is important to monitor the leasing market in the coming quarters.
Leasing of studio and one-bedroom units is stable and still ranges between Php 15,000 to Php 30,000, and may reach the Php 50,000 per month-level, depending on the location, furnishing, and amenities of the condominium building.
Luxury condominium units command the highest rents that plateaued at Php 1,000 per square meter per month or Php 300,000 per month-level for big units of 300 sqm-cut. A handful of units in Rockwell, Makati and BGC even reached the Php 1,100 per sqm-rent. The typical rental range for luxury two-bedroom and three-bedroom units is between Php 120,000 to Php 250,000 depending on the size, location and furnishing. For the luxury and high-end segment, there are limited choices for rent.
One successful player that is maximizing the rental market catering to the mid-market is the JNJ Summithill Group. It created a market niche by building "dormitels" near major universities. Its "Upad" in the vicinity of De La Salle University-College of St. Benilde and St. Scholastica's College offering rooms that can be shared by two, three, four or even six students. Professionals are most welcome and can opt to lease one room for himself/herself alone. Apart from very plush room amenities, Upad has a gym and a pool supporting the healthy lifestyle of the young students and professionals or "millennials". The building is practically 100% occupied. It is now finishing its second project is along P. Campa St. in Manila City, and starting to build its third project, which are both very close to the University of Sto. Tomas. "UHome" the third project is now offering units for investment sales, but the developer shall continue to operate rental units. Apart from the students, call center and BPO rank-and-file employees are also driving the bed space demand.
Retail Market
The retail market is relatively quiet in the past quarter. As earlier reported, some players are seriously considering the REIT Law, given the positive pronouncements of the government, in listing their income-generating retail properties as REIT companies in the stock exchange. Based on the last count of Pinnacle Research, the SM Group has 58 malls, Robinsons Group has 40 malls, and Cosco/Puregold Group has 36 stores. The Ayala Group intends to reach the 3-million square meter mark in shopping mall footprint by 2020 while Megaword Group will launch an average of 60,000 to 70,000 square meters of retail space every year until 2019. The Vista Land Group intends to open six to seven “AllHome” annually over the next five years that would be integrated with their residential developments. Apart from the malls, retailers have been expanding the various retail platforms especially the convenience stores.
Hotel and Gaming Market
Increasing tourist arrivals in recent years have buoyed the expectations of hotel players. For 2016, more than 900 keys came online, breaching the 20,000-hotel room mark in Metro Manila. These hotels are benefiting from the 2.98 million tourists spending a total of Php 127.37 billion, which do not yet include the spending of the local tourists. Developers are steadily constructing hotel rooms "with star" and an additional of approximately 7,000 rooms are scheduled to be completed in the next four years.
Apart from the private sector, the government through the Department of Tourism (DOT) and its attached agency Tourism Infrastructure and Enterprise Zone Authority (TIEZA) has been busy promoting Philippine tourism and ancillary infrastructures. The focused development of tourism infrastructure would positively impact on the development of hotel, gaming and leisure industry. This would be good to both the local and foreign tourists since there will be more choices of tourist spots, events and accommodations; and in turn, generate more revenues.
Industrial Market
The Philippine Economic Zone Authority (PEZA) accreditation has been crucial in motivating developers to build more industrial cum commercial spaces, and even Information Technology (IT) Parks/Centers, Medical Tourism Economic Zones, Retirement Economic Zones, Agro-Industrial Economic Zone, Facilities Economic Zones, and Utilities Enterprise Economic Zone. At present, there are 71 Manufacturing Economic Zones, 232 Information Technology Parks/Centers, 21 Agro-Industrial Economic Zones, 19 Tourism Economic Zones, and two Medical Tourism Parks/Centers or a total of 345 economic zones, based on latest figures of PEZA. There also 135 proclaimed zones and another 349 developments in progress.
While these figures are seemingly high, average vacancy of operating economic zones are estimated at only 10%. In recent quarters, Pinnacle has been reporting the pent up demand for industrial spaces. Since industrial spaces are typically sprawling, average lease on land of selected zones is only Php 50 per sqm per month, while average lease of selected factory spaces is Php 190 per sqm per month.
The Duterte administration also seems set on developing markets outside Metro Manila, counter-balancing and decongesting mono-centric growth and development.
Cebu Market
Metro Cebu, led by Cebu City, is the undisputed secondary center of the Philippines. In terms of cost of living and prices, the Cebu market is comparative to Metro Manila. In terms of education and culture, Cebu highly influences the Visayas and Mindanao islands.
The BPO industry heavily drives the office market in Cebu. There is a total of approximately 700,000 square meters of Grade A office spaces. Average rents are slightly higher than Php 500 per sqm per month, which is substantially lower than Makati and BGC business districts. Vacancy of office space is likewise a low 5%, keeping the rents stable.
On the residential front, the Metro Cebu Market has the highest number of condominium units outside of Metro Manila, totaling to over 20,000 units, and an average of 5,000 units will be delivered in the next couple of years. Average selling prices are north of Php 90,000 per square meter. The rental market is also well developed given the healthy population of local executives and expatriates.
The retail market is likewise robust led by the home-grown leaders, Gaisano Groups, and national players. Total commercial-retail spaces recently breached the one million-square meter mark with steady completion of the sprawling SM Seaside Cebu. Like the pattern in Metro Manila, retailers are developing various platforms of retail stores and shops.
Hotel developments are likewise prolific in Metro Cebu, whether local or international brands. The industrial sector is very healthy as well; in fact, the industrial zones in Metro Cebu were filled up well ahead of their counterparts in Luzon.
The Cebu Market is practically developed, and some would even say bursting to the seams. If a new real estate player would come in, proper due diligence is instructive as the competition would be very stiff.
Next 10 Markets
The robust demand for office space from the BPO industry is changing the landscape of a number of cities. Pinnacle Research cited industry sources who are now gearing up for the “Next 10 Cities.” These cities are: Baguio City, Davao City, Dumaguete City, Iloilo City, Lipa City, Metro Bulacan (Baliuag, Calumpit, Malolos City, Marilao and Meycauayan City), Metro Cavite (Bacoor City, Dasmariñas City and Imus City), Metro Laguna (Calamba City, Los Baños and Sta. Rosa City), Metro Naga (Naga City and Pili), and Metro Rizal (Antipolo City, Cainta and Taytay).
BPO companies are choosing these for various reasons; healthy demographics and relatively developed infrastructures are the key criteria.
Apart from office spaces, these markets would probably experience developments of the residential and commercial-retails spaces, and perhaps, hotel rooms as well. With the push of President Duterte to disperse spending and growth, development of these "Next 10 Markets" is likely to happen sooner.
Souce: Property24 | September 27, 2016
